Economic Anxiety Sparks Broad Selloff

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Equity and commodity markets alike were shaken by fears the economic recovery might be less robust than originally thought.

Today's Markets

The Dow Jones Industrial Average slid 139 points, or 1.1%, to 12,584, the S&P 500 fell 12.2 points, or 0.91%, to 1,335 and the Nasdaq Composite shed 13.5 points, or 0.48%, to 2,815. The FOX 50 was off 10.5 points to 940.

After staging a mid-day comeback on light volume, stocks headed deep into the red as traders confronted data foreshadowing a potentially bumpy road ahead for the economy.

"What is particularly troublesome is the clear lack of consumer appetite for spending and the pinch consumers are feeling as a direct result of inflation," said Peter Kenny, managing director at Knight Capital Group, citing highly-elevated energy prices. "The market is pricing in the fear of a pullback in the economy."

Trading was particularly volatile Thursday, with the VIX, a gauge of stock market volatility soaring  7%.  The blue chips shed more than 200 points at one point as selling volume rushed back into the markets.

In a marketplace where large shifts are generally driven by specific events, market participants offered divergent views on what sparked the late-day downturn.

By the end of the day, 27 of the 30 Dow components closed in negative territory.  The three issues that were the hardest hit, Alcoa (NYSE:AA), ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), are all major players in the energy and materials markets. Intel (NASDAQ:INTC), Cisco (NASDAQ:CSCO) and Disney (NYSE:DIS) managed to eke out gains.

Commodities were pummeled on the day as fears slower economic recovery would mean significantly lessened demand across the board. Oil and gasoline both experienced their biggest decline on a percentage basis in two years.

Light, sweet crude sunk $9.44, or 8.6%, to $99.80 a barrel.  Wholesale RBOB gasoline tumbled 23 cents, or 6.8%, to $3.10 a gallon.

Gold prices were off $34.00, or 2.2%, to $1,481 a troy ounce. Silver plunged $3.15, or 8%, to $36.23 a troy once.

Consumer gas prices, which lag behind the futures markets, are teetering on the $4.00-level and have indeed surpassed it in many states.  A gallon of regular gas cost $3.99 on average nationwide, up from $3.69 last month and $2.92 last year, according to the AAA Fuel Gauge Report.

Adding to the weakness in commodities was strength in the U.S. dollar, which soared 1.4% against a basket of world currencies.  The euro dropped 2.1% against the dollar, its biggest drop since last August.

The euro was slammed after the European Central Bank held short-term interest rates steady and ECB President Jean-Claude Trichet avoided hinting at a rate hike.

The ECB's comments imply "there will not be a further rate hike in June, contrary to the speculation," wrote Ken Wattret, chief eurozone market economist at BNP Paribas, in a note.

Interest rates are important in the foreign exchange market because demand for money generally follows higher rates.  Indeed, that's the euro had been gaining substantially on the dollar partly because the markets expected the generally inflation-hawkish ECB to raise rates in the near future.

Weekly jobless claims jumped to 474,000 from an adjusted 431,000 last week -- the highest reading since August 2010. The four-week-moving-average, which smoothes out volatility, jumped 22,250 to 431,250 for the week.

Economists generally consider claims under the 400,000 mark point to moderate labor market expansion. However, this week's report was affected by several temporary factors that weren't included in the usual seasonal calculation including spring break layoffs in New York.

As a result of recent temporary factors "we are hesitant to take too strong of a signal from the recent increase in claims data," wrote Michael Gapen, an economist at Barclays Capital, in a note.

The highly-anticipated monthly unemployment report is slated for release on Friday.  The unemployment rate is expected to stay steady at 8.8% with total non-farm payrolls increasing by 189,000.

On the corporate front, General Motors (NYSE:GM) posted first-quarter earnings of $3.2 billion, or $1.77 a share, on revenue of $36.2 billion.  Excluding special items, the automaker earned 95 cents, topping Wall Street's view of 91 cents.

"Strong customer demand for our new fuel-efficient vehicles and a competitive cost structure" helped the company achieve its fifth consecutive quarter of growth, said Dan Akerson, chairman and CEO of General Motors.

Corporate News 

CVS Caremark (NYSE:CVS) earned 57 cents a share in the first quarter, excluding one-time charges, beating out estimates of 55 cents.

Kendle International (NASDAQ:KNDL) agreed to be acquired by privately held INC research for $232 million, sending shares soaring.

ARM (NASDAQ:ARMH) shares were under pressure after Intel (NASDAQ:INTC) said it will begin making a new breed of power-efficient processors, potentially encroaching on a market ARM has a strong position in.

Lloyds Banking Group (NYSE:LYG) a major British bank took a surprising $5.3 billion charge on its earnings after people sold insurance they wouldn't be able to claim.

Foreign Markets

The European Central Bank and the Bank of England held short-term interest rates steady as expected. Major financial institutions like Lloyds and Societe Generale posted disappointing quarterly results, pressuring the markets.

The English FTSE 100 was off 1.1% to 5,920, the French CAC 40 fell 0.95% to 4,005 and the German DAX was up 0.04% to 7,378.

In Asia, the Chinese Hang Seng was down 0.23% to 23,262 and the Tokyo Stock Exchange was closed for the Children's Day holiday.